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What Level of Public Debt Could India Target?

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  • Petia Topalova
  • Dan Nyberg

Abstract

This paper discusses possible medium-term public debt targets for India, based on evidence from the economic literature on prudent levels of public debt and the feasibility for the country to meet a particular target over the next 5-6 years. While recognizing the challenges in determining an appropriate debt target, cross-country analysis and simulations suggest that a debt ratio in the range of 60-65 percent of GDP by 2015/16 might be suitable for India. Such a debt ceiling, while still above the average debt level for emerging markets, is within the range of debt ratios that would provide room for countercyclical fiscal policy and contingent liabilities. It would also send a strong signal of the government''s commitment to fiscal consolidation by making a clear break with the past.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/7.

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Length: 27
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/7

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Keywords: Fiscal consolidation; Debt management; Debt sustainability; Public debt; Risk management; fiscal rules; debt target; fiscal policy; government debt; debt ratios; external debt; debt intolerance; debt thresholds; debt reduction; government deficit; taxation; fiscal measures; fiscal responsibility; debt dynamics; debt sustainability analysis; fiscal framework; tax revenue; domestic debt; indebted countries; tax administration; fiscal deficit; fiscal stimulus; currency composition; government revenue; public sector debt; fiscal discipline; aggregate demand; tax base; fiscal stress; fiscal rectitude; debt policy; sovereign debt; tax returns; fiscal space; fiscal management; fiscal stance; debt overhang; debt rescheduling; domestic currency; marginal cost of debt; fiscal deficits; budget constraint; central bank; tax performance; fiscal responsibility frameworks; sovereign defaults; tax burden; budget deficits; debt sustainability analyses; highly indebted countries; government fiscal deficit; fiscal consolidation episodes; government budget constraint; debt defaults; fiscal sustainability; tax reform; currency debt; fiscal prudence; fiscal reform; expenditure reform; medium-term fiscal framework; debt stock; government deficits; level of indebtedness; debt relief; administrative improvements; fiscal responsibility laws; budget management; debt burden; sovereign debt crises; fiscal response; central government fiscal;

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References

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  1. Jonathan David Ostry & Abdul Abiad, 2005. "Primary Surpluses and sustainable Debt Levels in Emerging Market Countries," IMF Policy Discussion Papers 05/6, International Monetary Fund.
  2. Aiyagari, S. Rao & McGrattan, Ellen R., 1998. "The optimum quantity of debt," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 447-469, October.
  3. Gabriel Di Bella, 2008. "A Stochastic Framework for Public Debt Sustainability Analysis," IMF Working Papers 08/58, International Monetary Fund.
  4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
  5. Audrey Desbonnet & Sumudu Kankanamge, 2007. "Public debt and aggregate risk," Documents de travail du Centre d'Economie de la Sorbonne v07042, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  7. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  8. repec:hal:cesptp:halshs-00175877 is not listed on IDEAS
  9. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  10. Stephan Danninger, 2002. "A New Rule," IMF Working Papers 02/18, International Monetary Fund.
  11. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
  12. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "The Forgotten History of Domestic Debt," NBER Working Papers 13946, National Bureau of Economic Research, Inc.
  13. Cohen, Daniel, 1997. "Growth and external debt: a new perspective on the african and latin american tragedies," CEPREMAP Working Papers (Couverture Orange) 9715, CEPREMAP.
  14. David J. Smyth & Yu Hsing, 1995. "In Search Of An Optimal Debt Ratio For Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 51-59, October.
  15. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  16. Bernheim, B Douglas, 1989. "A Neoclassical Perspective on Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 55-72, Spring.
  17. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
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Cited by:
  1. van Doorn, Ralph & Suri, Vivek & Gooptu, Sudarshan, 2010. "Do middle-income countries continue to have the ability to deal with the global financial crisis ?," Policy Research Working Paper Series 5381, The World Bank.
  2. Sergey Vlasov, 2011. "Russian Fiscal Framework Past, Present and Future.Do we Need a Change?," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(64), pages 35-81, October -.

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